Uncertain times: 4 steps to start your supply chain risk evaluation

The recent U.S. Presidential election, Brexit, unrest throughout the world; there is a lot to be uncertain about. While I don’t hold a crystal ball as to what will happen next, I can help you be more agile no matter what comes your way.

The key is be prepared as much as possible.

While we all know plans change, the mere fact that you’ve made a realistic evaluation of the possibilities, who you are as a company, and what you will and won’t change for which size/type/value of customer/supply chain and risk event will at least minimize any upcoming surprises.

So where to start?

We’ll evaluate this question in three parts:

A) Changes that may affect you and your company

B) Changes that may affect your customers, and

C) Changes that may affect your supply chains

This post will deal with changes that may affect you and your company.

I’m going to use the U.S. presidential election results for my examples and what-ifs. If you are in another part of the world, substitute in your particular uncertainty; the methodology remains the same.

1. List potential changes, how they may affect you, and their probabilities of occurring
   The first part of risk analysis is to identify and clearly state what the risk is. The wording must be clearly understood by anyone who reads the risk plan.To get to this point, list the potential changes, threats, and opportunities that may come about with the new president and his administration.

   Potential changes include:

   Affordable Health Care law – statements have been made that this will be repealed

   Free trade agreements – statements have been made that NAFTA and other agreements will be renegotiated or stopped from moving forward

   Remove financial/banking regulation – statements have been made about eliminating the Dodd-Frank Act, would Sarbanes – Oxley also be under consideration

   Remove environmental regulation – statements have been made to close down the EPA, eliminate various environmental protection laws, and cancel the Paris agreement

   Increase taxes on imports

   Increase taxes on companies that outsource – taken to mean critical tasks being performed outside the borders of the U.S.

   Decrease the Department of Education – taken to mean less funding and a smaller footprint, more emphasis placed at local levels

   Play a different role in the world – statements have been made about changing allied relationships, changing how the U.S. is involved globally, becoming more U.S.-centric

   Make America Great Again – where will money be spent, how, to achieve what results

2. Start going down the list and determine what must be examined for each entry and the potential consequences of the associated risk. For example:Risk: Increase in import taxes

   Background:

   75% of our components are imported. This is done to keep COGS low since our products are sold in price sensitive markets.

   Possibilities to be considered:

   An increase in taxes could a) increase our prices to a point where we are no longer able to sell our product because our pricing is too high to be attractive, b) increase everyone’s prices and therefore keep the competitive playing field level, c) drive some competitors out of business since they do not have the financial reserves to absorb the increase until the market settles down – determine which ones, d) force us to move sales out of the U.S. since we would not be price competitive, and/or e) force us to revise our supply chains by evaluating 1) crossing U.S. borders only once, 2) moving entire supply chains onshore – this choice is dependent on finding existing U.S. suppliers in the needed cost range, 3) improving our process efficiencies, and 4) increasing automation.

3. With options in hand, develop projects to analyze the various options and to deliver data supported explanations.Make sure to include how your internal processes will need to be adjusted, how long the infrastructure and process changes may take, and if there will be a change to the value you currently deliver.
4. Once the evaluations are complete, figure out what risk methodology you will employ if the risk becomes an issue (ie: it occurs instead of just being a possibility). For your company/supply chain, will you avoid the risk, transfer it somewhere else, minimize it in some way, or accept and deal with it when it happens? In each case, what exactly will the company do, how will your supply chains execute, and who is responsible for making sure these things happen?

With this knowledge, you can make decisions about which areas you want to begin changing now due to long lead times. Make sure your changes bring improvement to your supply chains that will mitigate the risks you’ve identified before you have to worry about them. Even better, make sure your changes bring improvement to your supply chains no matter what environment you find yourself in.

You’ve begun creating a competitive advantage that will allow you to meet whatever happens head on. Next time, we’ll look at risk in terms of our customers.

Key words and concepts: risk, supply chain risk, risk analysis, risk mitigation, competitive advantage, uncertainty, customer value

About the author: Cynthia Kalina-Kaminsky with Process & Strategy consults with and provides training for organizations eager to increase their competitive value by helping enable growth, align performance, make and move product (even when the product is electrons).